After damaging hailstorms in 2003, many Texans answered their doorbell to find a roofer offering to assess damage and handle their insurance claim. After reports of incomplete and shoddy repairs reached the Capitol, the Legislature required public insurance adjusters to be licensed and comply with professional and ethical standards.
On Thursday, the Texas Department of Insurance defended the regulations before the Texas Supreme Court against claims that provisions found in section 4102 of the Insurance Code violate the First Amendment. The statutory licensing requirement and conflict of interest prohibitions for public insurance adjusters are being challenged by Stonewater Roofing and the Institute for Justice.
A former client sued Stonewater for allegedly acting as a public insurance adjuster, even though the client hired an actual, licensed public insurance adjuster for the same job, Stonewater says. The company petitioned the judicial branch for a declaration that the prohibitions are invalid on their face and as applied under the First and Fourteenth Amendments to the U.S. Constitution and Article I of the Texas Constitution.
The alleged wrongdoing includes statements on Stonewater’s website promoting extensive experience dealing with the insurance claims process. TDI says the language on the website and in service contracts confirms that Stonewater engages in public insurance adjusting as defined by statute.
Stonewater says it needs to speak openly with its clients and their insurers, but the Texas Legislature has made doing so a potential criminal act subject to “crippling civil and administrative penalties.” The company argues that the regulations are unconstitutionally vague.
A Travis County district judge granted TDI’s motion to dismiss. The Seventh Court of Appeals in 2022 reversed and remanded, holding that Stonewater’s pleadings demonstrated an adequate basis in law and fact as to both its constitutional claims.
TDI, in its petition for review, argues that the challenged provisions do not violate Stonewater’s free speech rights because they regulate professional conduct with only an incidental effect on speech.
Evan S. Greene, assistant solicitor general, presented arguments for the insurance department. He said the regulations do not censor or compel speech and likened them to requirements that an attorney be licensed to provide legal advice. Justice Evan Young asked whether the state could require a licensing standard for journalists to ensure their competency.
“As long as the state didn’t get into content, yes,” said Greene. He soon backpedaled under further questioning to concede that it might be problematic to require a license for a profession so centered around free expression.
Jeffrey Rowes of the Institute for Justice, an amicus party, jumped on Young’s question during his five minutes of argument time. “The logical conclusion of TDI’s position is, ‘Yep, we can create a license for journalists that doesn’t implicate the First Amendment at all,’” he said.
The Institute, in its brief by Arif Panju of Austin and Benjamin A. Field of Arlington, Virginia, discusses two cases from the Fifth U.S. Circuit Court of Appeals, including one involving a retired Texas veterinarian who offered advice about pet care over the phone or by email. The Fifth Circuit held that full First Amendment scrutiny applied. The brief also referenced holdings striking down bans on lawyer advertising. “If the Government’s view of the First Amendment prevailed, no speech would be safe so long as a legislature is willing to arm censors with a relevant occupational-licensing law,” the brief states.
Chief Justice Nathan Hecht said Rowes’ position in the case “seems to argue that the government can’t regulate at all.”
Hecht also asked Stonewater’s lawyer, Chase A. Cobern if he was arguing that the state can’t license adjusting at all.
“How could the state have an effective, permissible licensing of adjusters?” Hecht said.
Cobern said the government should have to justify its speech restriction under strict scrutiny. He said the state could revise the law to address concerns about insurance fraud by restricting contracts for contingency fees and defining a public adjuster as somebody who receives a portion of the claim.
“That’s not what this restriction does,” he said. “This restriction targets specific speech about a specific topic, insurance claims. As Justice [Jeff] Boyd was alluding to, it is a viewpoint case because it’s targeting speech on behalf of the insured.”
In Stonewater’s brief, Cobern and Michael A. McCabe, partners at Munck Wilson Mandala, warned about separating speech from conduct. “If relabeling speech as professional conduct is enough to avoid the First Amendment, as TDI implies, then there is nothing left of the free-speech right for countless Texans who, like Stonewater, ‘practice’ State-defined ‘professions’ by speaking,” they said.
Rowes evoked the image of a roofer standing atop the house, cell phone at his ear, talking to the insurance company trying to protect the homeowner from getting ripped off.
“TDI says, nope, at that moment you’re advocating, maybe you’re negotiating. We’re now defining speech by its function and purpose, which Sorrell says is content-based,” Rowes said. The case he referenced, Sorrel v. IMS Health Inc., is a 2011 case where the U.S. Supreme Court struck down a law restricting disclosure of pharmacy records about doctor prescribing.
Justice Jimmy Blacklock said the interests of the roofer and homeowner may not coincide “The guy on the roof wants to get paid. He’s not asking for more money on behalf of the insured really. His interests are aligned with the insured and they’re on separate tracks,” he said.
During his rebuttal time, Greene said he doesn’t think that a roofer communicating with the insurer about how much they are willing to pay for a new roof would cross the line into prohibited activity but said he didn’t “want to say that magic words can get you out of trouble.”
In TDI’s brief, the attorney general’s office warned that the Seventh COA’s opinion “may be viewed by litigants in future cases as precedent or persuasive authority for undoing numerous regulatory schemes governing professions and professionals that benefit public health and safety, economic interest, and the proper functioning of society.”
Not participating in the arguments but looming large in the debate is an amicus brief received from the influential Texas Civil Justice League. In it, George S. Christian said that Stonewater and other roofing contractors benefit from the law that “shields them from unfair competition by out-of-state contractors that rush in after hailstorms and rush out with insureds’ money in their pockets. Furthermore, by helping to ensure that property owners get their roofs fixed properly in the most efficient and cost-effective manner, the law contributes to the maintenance of affordable and accessible insurance for everyone, including Stonewater.”
The court also received an amicus brief from the Association of Public Insurance Adjusters in support of TDI. And, two days before the oral argument, the court received a brief from the insurance industry, including the Insurance Council of Texas, saying the law is working well and most roofing companies comply.
“If Stonewater’s position is accepted by this Court, the Texas insurance marketplace could soon join other states in experiencing an insurance crisis,” said the brief by Steven J. Badger of Zelle LLP.
Rodney A. Smolla, president and law professor at the Vermont Law and Graduate School, sent a brief in his individual capacity prepared by Christopher R. Knight of Haynes Boone and Vince Eisinger of Cranfill Sumner in Raleigh. He urged the court to uphold the intermediate court of appeals.
“Challenges to professional licensure regimes are likely to accelerate as the internet impacts traditional conceptions of professionalism and licensure. As the quantity of information stored on the internet is increasing exponentially, many now have access to the expert information that was once the exclusive provenance of licensed professionals who charged well for their services.
“Some of the regulations brought to bear against these innovations, like some of the regulations that have long applied to many learned professions, will pass heightened First Amendment scrutiny. Some will not. Protection of free speech, however, demands that no such regulations receive a free pass.”
The case is No. 22-0427.